[TrendForce View] Will the rest of the semiconductor industry follow TSMC and Samsung in exploring cryptocurrency opportunities?
As bitcoin mining reaches a fever pitch worldwide, semiconductor companies are also swept up by the rush from the virtual currency market. TSMC’s quarterly financial conference in January put the spotlight on cryptocurrency mining as a potential application market. Samsung has also confirmed that the company is engaged in the manufacturing of application-specific IC (ASIC) products for bitcoin prospectors. The bullish stance of the two semiconductor giants has spurred the rest of their industry to contemplate the opportunities that virtual currencies may bring in the future.
SMC’s quarterly financial conference in January was notable for being the last one attended by TSMC Chairman Morris Chang before his official retirement. At the event, Chang created additional buzz on the market with an intriguing remark about the future of the semiconductor industry. He pointed out that his company will rely on high-performance computing (HPC), internet of things (IoT), and automotive electronics to drive its revenue during 2018. Smartphone components, on the other hand, is no longer seen as a major pillar that support the foundry business.
Chang added that the growth of HPC will not only come from the inclusion of artificial intelligence (AI) within various consumer electronic products but also from demand generated by cryptocurrency mining. Throughout the conference, key member of TSMC’s executive team — CFO Lora Ho plus Co-CEOs Mark Liu and C.C. Wei — further mentioned the rise of virtual currencies in their speeches to investors.
Samsung at its recent financial conference also reveals its intention to ride on the wave of cryptocurrency mining. At the conference, Samsung announced that the future profit of its semiconductor business will come from its second-generation 10nm chips for flagship smartphones as well as from tapping the hardware demand created by virtual currency technologies. There were also earlier reports of Samsung signing a contract with a Russian bitcoin mining company to provide ASIC chips.
For now, cryptocurrency mining appears to be a rare boon for the semiconductor market. However, whether this exciting application can be relied on as a new growth engine requires a more careful evaluation.
The semiconductor research team of the global market intelligence firm TrendForce has made an interesting observation on this topic from the manufacturing angle. TrendForce notes that chips for cryptocurrency mining are currently made on the 10nm processing node. Among the major foundries, TSMC and Samsung have the capability to expand into this application market and benefit from related opportunities. Conversely, GlobalFoundries and UMC presently do not have plans to migrate to the 10nm-class processing, so demand from cryptocurrency mining is not expected to have much influence on their businesses.
of virtual currencies, and they find that bitcoin is the primary driver of the latest boom in cryptocurrency mining. If the value of the bitcoin stop rising and becomes stagnant, then the rate of return on investing in mining operations will slide as the volume of this particular virtual currency accumulates. Since mining bitcoins involves solving math problems that increase in their complexity with every new unit of the currency produced, using the same amount of computing power in a mining operation will lead to diminishing returns (i.e. less verifiable bitcoin units over time). In sum, the semiconductor industry as a whole is still uncertain about the long-term profitability of the cryptocurrency mining because the business model is built on the volatile virtual currency market.
And the bitcoin market has been on a roller coaster. In 2012, a unit of bitcoin was worth just around US$20. By December 2017, the price had soared to US$20,000. Then, the exchange crashed, and the currency’s unit value was under US$8,000 at the start of February 2018.
TSMC recognizes the unpredictability of the virtual currency market. Co-CEO Liu at the financial conference stated that the company will closely monitor this year’s demand trend for cryptocurrency. Liu emphasized that since the cryptocurrency mining application is still at the early stage of development, its future demand is difficult to estimate.
Based on the above observations, TrendForce believes that the recent surge of cryptocurrency mining will be a short-term stimulant in the foundry market instead of being a long-term source of demand.
However, it is worth noting that activities related to the creation and storage of virtual currencies are pushing up the prices of specialty memory products. DRAMeXchange, TrendForce’s memory research division, reports in its latest analysis that there is strong demand for graphics DRAM from the data mining and processing application. On the supply side, DRAM manufacturers have yet to allocate more resources for the production of graphics DRAM. DRAMeXchange therefore anticipates that graphics DRAM will see the largest price increase among different types of DRAM products in 2018.
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